FRANKFURT (Reuters) – The European Central Bank will keep raising interest rates and may even need to restrict economic activity to tame inflation ECB President Christine Lagarde said on Friday, singling out rates as the bank’s key instrument over balance sheet reduction.
“We expect to raise rates further – and withdrawing accommodation may not be enough,” Lagarde said in a speech at a conference.
“Interest rates are, and will remain, the main tool for adjusting our policy stance,” she said. “But we also need to normalise our other policy tools and so reinforce the impulse from our rate policy.”
The ECB has raised rates by an unprecedented 200 basis points since July to tame inflation, and said that more policy tightening is coming via rate hikes and the reduction of its bank’s bloated holding of government debt.
Investors are now split between pricing a 50 and 75 basis-point hike in December after back-to-back 75 basis point moves, and see the reduction of bond holdings, also known as quantitative tightening, starting in the first half of 2023.
(Reporting by Balazs Koranyi and Francesco Canepa)
